Aspen Group IPO: 3 Worrying Signs About This Company

Aspen is a Malaysian-based developer of residential and mixed development properties. It provides value-added options and services for their completed units, such as quality furnishings and home appliances.

Aspen IPO details

Aspen’s IPO will be offering a total of 173,270,000 invitation shares. That includes 4,348,000 shares for the public and 168,922,000 placement shares. The issue price was S$0.23 per share.

The IPO has opened last Wednesday (19 July 2017) and will close at noon tomorrow (26 July 2017). Its shares are expected to start trading this Friday (28 July 2017).

2. Poor profitability

Aspen commenced its property development activities only in FY2015. Therefore, there are no profitability figures as of FY2014.

From FY2015 to FY2016, Aspen’s experienced an 89% growth in its revenue from RM52.5 million to RM99.7 million. This huge increase is mainly attributable to the increase in construction activities and a higher percentage of units sold for both Tri Pinnacle and Vervéa.

However, investors beware!

Its bottom-line suffered a loss in FY2016 despite the surge in its top-line growth. That is because of a further increase in its cost of sales, which diluted its gross profits. In FY2015, the cost of sales accounted for 56.84% of its revenue but increased significantly to 64.44% in FY2016.

What’s worse, its expenses nearly doubled over the same period. That is due to increased development costs for its existing and upcoming projects, accompanied by higher tax expenses.

As of FY2016, Aspen has total debt holdings of RM118.7 million versus a cash pool of RM103.4 million. The total alarming debt is even more than its entire sales figure in FY2016!

3. Uncertainty on future growth

As of FY2016, Tri Pinnacle had 78.77% of units sold, and Vervéa has 82.95% of its units sold. To me, it seems that both projects are tending towards its full capacity. Therefore, Aspen’s future growth hinges greatly on

whether it can deliver the Mega Integrated Shopping Centre and

its ability to seek more projects going forward

Furthermore, each project may take years to materialise, accompanied by the huge initial outlay of development expenses.

That is not for income investors as well because Aspen has not been distributing cash dividends since its incorporation in 2016.

There is no mention of a fixed dividend policy in the IPO prospectus too.

SCA’s take

Despite an 89% increase in its revenue last year, Aspen suffered a loss at its bottom-line. Moving forward, this growth may be harder to sustain, given that the main contributing projects are hitting full capacity.

Furthermore, its profitability will be further depressed by one-off IPO costs this upcoming year. One big allocation for this IPO is catered towards ‘land purchases and future developments’. As this is a relatively new company, we are hesitant about its track record too.

It is relatively difficult to gauge its future growth solely based on its financials for the past two years. Therefore, investors may want to stay on the sidelines and look out for further proof of its financial strength before jumping on board this company.